Ceres: Asset managers have a key role to play in sustainable investing

I read with interest your 25 February article entitled “Asset Managers Have No Power to Address Environmental Risks—Amundi.” In response to proposed European Union directives focused on asset managers’ role in sustainable finance, Amundi argues that asset managers lack the power to address global environmental risks such as climate change. I would like to offer a different perspective.

Based on our work with 160 asset owners and asset managers through the Ceres Investor Network on Climate Risk and Sustainability, and global collaborations such as the Global Investor Coalition on Climate Change, it is clear that asset managers do indeed have a significant role to play in addressing climate change and other sustainability issues that can pose material investment risks and opportunities. It is now widely recognized that climate change presents significant risks to companies, real assets and to investors, including both transitional and physical risks. These have been outlined by the Task Force on Climate-related Financial Disclosures (TCFD), among others. Asset managers need to be part of the solution.

The Investor Agenda on accelerating action for a low-carbon world outlines four key steps that asset managers and their asset owner clients can and should take to address climate change, consistent with their fiduciary duty to their clients. And 425 investors globally are already taking one or more of these actions. First, asset managers should integrate climate risks and opportunities into their investment processes. They can assess climate risks in their funds and client portfolios, and provide advice to their clients on ways to mitigate climate and other ESG risks and to capture opportunities. They can also create sustainable investment products and strategies focused on reducing climate risk and investing in related opportunities.Second, asset managers should engage the companies in which they invest on climate and other material sustainability issues, using their leverage to urge companies to reduce their emissions, improve their board level governance on sustainability, and to improve their climate disclosures, through participation in the Climate Action 100+ and other direct and collaborative engagement opportunities. To date, 323 investors are participating in Climate Action 100+ engagements.
Third, asset managers should both push for improved corporate disclosure of climate risks and strategies for addressing them, and disclose their own risks and risk management strategies, in accord with the recommendations of the TCFD.

“Asset managers need to be part of the solution.”

Finally, asset managers can engage in policy advocacy, urging governments and regulatory bodies to take responsible action to address climate change and reduce emissions in accordance with the goals of the Paris Agreement. Ironically, Amundi has been a leader on a number of these fronts and in integrating ESG factors into their investment process.

Through these steps, asset managers can make a significant difference in helping their clients mitigate climate change risks and seize related investment opportunities presented by the transition to a low carbon economy. To achieve the goals of the Paris agreement, avoid catastrophic climate change and create a sustainable global economy, all players in the global financial system, including asset managers and their asset owner clients, will need to do their part, and greater leadership is urgently needed.

Christopher Davis is Senior Director, Investor Engagement at Ceres.